One Year Into The Future: Spotify And The New Record Business.

CDs won't ever go away completely; neither will vinyl. Physical recordings won’t disappear as consumer products. Collectors and audiophiles will still purchase them as part of high-end or limited-edition releases. (Well, maybe not all formats, though this is ironic given I was in a Range Rover last weekend that had a cassette deck hidden behind the GPS.) Each of these formats has a consumer, and each represents a revenue stream for musicians trying to make money by selling recordings of their work.

This brings us to Spotify, the Swedish streaming service that launched in the US a year ago. I remember anxiously awaiting its arrival, my interest piqued by reports from the international marketing staff who were hearing about the service in advance. We were waiting for this new service to launch in the US, wondering whether it would be important enough to revolutionize the music business.

It turns out that Spotify is important. It is the link between iTunes and the future.

The main question involving Spotify is how it replaces traditional revenue streams at a time when artists and record labels can’t completely shed their reliance on them. This is a particularly vexing question, as there are arguments that Spotify is not much of a revenue stream at all. (A subject for another post.) Physical sales still represent a substantial part of many labels’ and artists’ income (and margin), and no matter how much they may want to transition to digital, they must still deal with this reality. Even more troubling is that the mix of digital and physical sales is inconsistent from artist to artist, project to project and genre to genre. As a result, it is difficult to gauge the impact of any service.

Despite this question, Spotify represents a significant step forward in how music is monetized. Regardless of whether or not Spotify becomes the industry standard, it is important because it is the first to emerge that satisfies the issues previously affecting streaming services. It may not currently completely replace physical or even digital album and singles sales, but it works, shows consumer acceptance and is growing. It is also legal. Spotify may be untested, but as consumers shift into the cloud, and from "ownership" to "access" models, it gives artists a chance to adjust to these new models while continuing to make money from traditional ones. It also gives consumers an easy way to join the newest segment of the record business.

iTunes was once a new service that solved many problems inherent in "ownership" models. However, if the future is streaming, satisfying artists and consumers in different ways is the key to success for "access" models. Spotify is important because they have realized this.